Saturday, December 14, 2024

Govt Fines Zerodha Asset Management for Late CFO Appointment

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The Ministry of Corporate Affairs (MCA) has fined Zerodha Asset Management Private Limited and its directors, including founder Nithin Kamath, for not appointing a Chief Financial Officer (CFO) within the required time.

Violation of Companies Act

According to an MCA court order released on July 31, Zerodha AMC violated Section 203 of the Companies Act, 2013. This section mandates that companies with a paid-up capital of more than Rs 10 crore must have key managerial personnel, including a CFO and a company secretary.

Details of the Penalties

The MCA has fined Zerodha AMC Rs 5 lakh. Additionally, founder Nithin Kamath has been fined Rs 4.08 lakh. Other top executives were also penalized:

  • Director Rajanna Bhuvanesh: Rs 5 lakh
  • CEO Vishal Virendra Jain: Rs 3.45 lakh
  • Company Secretary Shikha Singh: Rs 3.45 lakh
  • Directors Nitya Easwaran and Tushar Mahajan: Rs 1.5 lakh each

These penalties must be paid within 90 days from the issuance of the order, and directors must pay their fines from personal funds.

Admission of Fault

Zerodha Asset Management admitted its fault in a suo-moto application filed on July 9, acknowledging the delay in appointing a CFO. The company stated, “We did not have a Chief Financial Officer until the appointment of Chintan Vasantlal Bhatt on March 24, 2023, thereby violating the Act from December 20, 2021, to March 23, 2023.”

Legal Compliance and Appeal

Section 203(1) of the Companies Act, 2013, along with Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, requires public companies with a paid-up share capital of Rs 10 crore or more to have a full-time CFO and company secretary. Zerodha AMC’s failure to comply with this requirement until March 2023 led to the penalties. The company has made an application to address the unintentional delay and is contesting the order.

“We are contesting the order, and an appeal has already been filed with Regional Director, Hyderabad on July 16, 2024,” said CEO Vishal Jain.

Zerodha AMC’s Presence

Zerodha Fund House, a collaboration between Zerodha brokerage and smallcase wealth-tech platform, was established in November 2023. The firm manages over Rs 2,000 crore in assets. As a passive-only asset management company, it focuses on creating index funds and ETFs designed for easy investment and transparency.

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